Saturday, February 27, 2010

Stylist as Employee vs. Independent Contractor

Many salon owners desire to designate their stylists as independent contractors rather than employees in order to avoid paying payroll taxes. In some instances this may be permissible, but owners should be very sure before doing it. If the Internal Revenue Service (IRS) determines that the stylists are employees and not independent contractors, the owner can be penalized up to 75% of payroll taxes owed. If you have several stylists, that could be a huge penalty on top of still having to pay the taxes owed.

Could we use independent contractor stylists?

When we were doing the research for opening our own salon, we looked at the options for paying stylists. Most salons in our area pay on commission. As we did our research, we were a bit shocked to find that in most salons around 50% of gross revenues go to pay salaries, commissions, and payroll taxes.  

Forming our salon’s parent LLC in Virginia

When my wife and I were preparing to start our business, we looked at all the different business structures. We decided to organize as a Limited Liability Company (LLC) due to the fewer requirements and the same limited liability as a corporation. It is important to note, however, that the Internal Revenue Service (IRS) treats us as a Partnership and all income is passed through to us as individuals. Thus, our LLC is a pass-through entity. Here is how simple it is to form an LLC in Virginia.

Sunday, February 14, 2010

Is a franchise salon really for us?

Some time ago we began looking into options for opening our own salon.  We thought the most logical place to start was with franchise salons.  After all, the large companies like Regis, Great Clips, and Fantastic Sams have the experience and walk you through the process.  We looked at them all and narrowed it down to Fantastic Sams and Cost Cutters (a Regis chain).  We did a lot of research, talked on the phone a lot, and met with regional developers.  Fantastic Sams was our first choice and seemed to have a terrific program.  All the while, however, I had been running numbers in excruciating detail again and again.  Something just did not add up, but we were still collecting information.